DUE DILIGENCE on LAND LEASE CONTRACTS A. Summary 1. Laws
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Henan Sustainable Livestock Farming and Product Safety Demonstration Project (RRP PRC 46081) DUE DILIGENCE ON LAND LEASE CONTRACTS A. Summary 1. Laws and Regulations related to Land Lease in the People’s Republic of China 1. In the People’s Republic of China (PRC), there are several laws stipulate the rural land system, which include the Constitution, the Property Rights Law (2007), the Land Administration Law (2004), the Law on Land Contract in Rural Area (2002), the Law on the Mediation and Arbitration of Rural Land Contract Disputes (2009), and the Contract Law (1999); as well as some administrative regulations related to rural land system are under effective, such as Regulation on the implementation of the Land Administration Law, Regulation on the protection of basic farmland. Furthermore, some ministerial regulations are also enforcing to stipulate the rural land, e.g., measures for the administration of the certificated of the right to contractual management of rural land; measures for the administration of the transfer of the land to contractual management of rural land, as well as the judicial interpretation of applicable law issues on rural land contract by the Supreme People’s Court. 2. Land ownership and nature of land use should not be changed after land is leased, and the interests of collectives and farmers should not be infringed upon. Land leasing is one of the contractual relationships, which should in comply with the provisions of the PRC’s Contract Law and other related laws. 2. Land Ownership 3. The Constitution clearly stipulates that the PRC has a socialist public ownership of land, i.e., an ownership by the whole people and ownerships by collectives. According to the Constitution and the Land Administrative Law, urban land is owned by the State, excluding those belonging to the state prescribed by law; whereas rural land (including suburban land) is owned by the collectives. State land requisition is the way to change the collective-owned land to state-owned land, whereby the State may requisition land owned by the collectives according to the Land Administrative Law and justification of public interest. 3. Land Use Right 4. The approaches of obtaining land use right are different according to different land ownership. For the land owned by state, the construction unit can obtain the land use right mainly depends on land use right transfer, namely bid invitation, auction, or listing-for-trading by the land administration department; after land use right transfer fee paid by the construction unit, it can obtain the land use right. 5. The land use right obtained from transference may be transferred to other enterprises, namely the transfer of state-owned land use right. Both parties involved in transfer of land use right shall sign a contract on transfer of land use right, and have the land use right leasing registered at the land administration department. 6. Usages of rural collective land can be divided into construction land, agricultural land (including cultivated land, orchards and/or gardens, forestry land, and grassland) and unused land. Based on the laws and regulations, the cultivated land can be classified as basic farmland and general farmland. It is different for obtaining land use right according to different identified 2 rural land use purpose. 7. For collective construction land, land use right transfer contract may be signed between rural collective economic organization and the potential land user; while policy constraints must be an underlying substance for obtaining land use right by the above mentioned method. 8. According to the Law on Land Contract in Rural Areas, the cultivated land, forestland, grassland, and other land for agricultural uses are owned by the farmers’ collective; and the system of land contract management should be adopted in form of household and others (e.g., collective management or specialized management). For the collective land contracted by the rural households, the transference of the right is undertaken according to law, on a voluntary basis, and with compensation. 9. Transference of the right to land contractual management includes subcontracting, alienation, leasing, exchanging, equity contribution, or other means. Land leasing is one of those means. 4. Control on the Usages of Land 10. The key point for control on land usage is to control the conversion of agricultural land into non-agricultural land. In case the purpose of land use need to be altered, the approval of the relevant administrative department shall be obtained according to laws. 11. The key point for control on land usage is to prevent cultivated land been converted into non-cultivated land. If the project site belongs to basic farmland, according to laws, more strict conversion conditions, procedures, and requirements should be followed compared with general farmland. 5. Principles on Right to Land Contractual Management Transference 12. According to Article 33 in the Rural Land Contract Law, if the leased land had been contracted by rural households, the right to land contractual management shall be transferred in adherence to the following existing legal principles: (i) Consultation on an equal footing, voluntariness, and compensation; and no organizations or individuals may compel the contractor to transfer his right to land contractual management or prevent him for doing so; (ii) No change shall be made in the future of the land ownership or the purpose of use of the land designed for agriculture; (iii) The term of the transference may not exceed the remaining period of the term of land use contract; (iv) The transferee shall have the capacity for agricultural operation; and (v) Members of the collective economic organization concerned shall enjoy priority under equal conditions. B. ADB Requirements on Land Leasing 13. Based on the Asian Development Bank’s (ADB) Safeguard Policy Statement (2009), the main concerned issues have been paid attention to the project are illustrated as follows:1 1 ADB. 2009. Safeguard Policy Statement. Manila. 3 1. Negative Impact of Land Transfer 14. It is necessary to make sure that the land transfer will not cause any negative impact to the original subject of rights, especially the interests of rural households. Most of the land leased in the project is owned by farmers’ collective, while such land has been contracted by households for 30-year terms. Therefore, it is necessary to make sure that the contract households are being treated fairly in the contract they have made with the enterprise, and that they are also protected during implementation of the land lease contract. 15. The fairness mentioned here includes (i) if the land lease contract can reflect the voluntariness of households when they sign the contract, (ii) if it meets the principles of good faith, (iii) if the rent is fair and reasonable, and (iv) if adequate compensation and relief can be provided when any disputes happen. Meanwhile, ADB also concerns if those households have good livelihoods after they lease out the land; and if the households can share with the enterprises about the added value from the leased land. 2. Protection Mechanism to Vulnerable Groups 16. Basic interests for women, low-income households, and persons with physical disabilities should not be influenced, and should ensure that their livelihood conditions shall be improved after the implementation of the project. 3. Environmental Protection 17. The utilization of leased land should follow with environmental protection objectives. The main purpose of the leased land in the project is mainly for developing animal husbandry; and so, the leased land for the construction of livestock farms or feed processing plants should not be located in the concerned distance from water resource protection zone, residential area, or any other areas that are not allowed to have livestock raising activities according to laws and regulations (i.e., within 500 meters). C. Key Issues Related to Land Lease in the Project 18. In the project, the PRC’s national laws and regulations, as well as ADB’s policy requirements concerning involuntary resettlement (including negotiated settlements) should be complied accordingly. From the aspect of land lease relationship identification procedure, the following basic legal issues may exist: 1. Subjects of the land lease contract 19. In the project, mainly collective-owned land shall be leased. 2 As mentioned before, collective-owned cultivated land, forestland, and unused land have been contracted by households or individuals according to the Law on Land Contract in Rural Areas. Therefore, the most prominent issue of the land lease contract in the project is to make sure with whom the enterprises should sign contract with, either the collective organization, or the actual land contracted people. 20. Currently, all the enterprises that need to lease land have all signed a contract with the respective village committee(s) directly. Some of the contracts attached signatures of farmer 2 One enterprise has leased land from a state farm; and this agreement dates back to year 2007. 4 representatives. However, the voluntariness between parties involved in the contract cannot be demonstrated. In other words, the interests of the land contracted farmers could have been influenced by the village leaders; but the project has moved to ensure that all agreements have been entered into on a voluntary basis. 21. To ensure the voluntariness of farmers, all the enterprises that signed contract directly with the concerned village committees were requested to revise the subjects of the land lease contract. Two methods have been suggested: one is to re-sign contract directly with land contracted peasants; and the other one is to sign contact with village committee who is acting as agent, together with the letter of authorization from the land contracted peasants. 22. For some subprojects, the leased land belongs to unused land without contractual relation between the collective economic organization and households; and so, they can actually sign the land lease contract directly with the concerned village committee.